In a display of stunningly bad timing, BofA bought Countrywide just before the collapse of the sub-prime mortgage market. The brand became so tainted that BofA dropped the Countrywide name earlier this week, only 10 months after spending $4.1bn for the financial equivalent of toxic sludge.The Countrywide blunder was followed by an even bigger debacle. Late last year, Federal Reserve chairman Ben Bernanke and then-Treasury secretary Henry Paulson pressured Lewis into buying Merrill Lynch. New York attorney general Andrew Cuomo is investigating Lewis for lying to Congress about the timing and size of bonuses paid to Merrill Lynch executives at the end of the year. More seriously, Lewis didn't disclose the size of the losses at Merrill Lynch before seeking shareholder approval of the deal.The final blow may have been rumours of the results of the stress test being administered to banks, which are set to be released next week. If BofA's balance sheet is found wanting, the bank will have to boost its capital, further diluting shareholder value.

I'll be on the air with Allan Loudell of WDEL, 1150 AM, this evening at 5:05 to discuss this and other news, perhaps Joe Biden's swine flu gaffe or Justice Myron Steele's unfortunate e-mail.

The DNREC Division of Fish and Wildlife’s Artificial Reef Program today oversaw the sinking of another 44 New York City subway cars at Delaware’s largest and most popular artificial reef, Redbird Reef.“The 44 new subway cars are a valuable addition to Redbird Reef,” said Jeffrey Tinsman, reef program manager with DNREC’s Fisheries Section. “The more extensive we can make our reef, the more opportunity we create for greater and more diverse fish and sea life as well as for providing greater fishing opportunities for anglers.”

Friday, April 24, 2009

Wealth and the Environment, Part 2

Picking up on yesterday's post on the Kuznets curve, John Tierney of the New York Times links to research on the link between wealth and pollution. This chart compares per capita sulfur dioxide emissions for the U.S. to the growth of affluence since 1900:The chart, from J. Ausubel and P.Waggoner, 2009, shows peaks in 1929, 1945 and 1970.I can think of plausible reasons for each peak. Industrial production collapsed after the stock market crash of 1929. Production was ramped up during World War II, when smokestacks were seen as a good thing. 1970 marked the beginning of the environmental movement, including the first Earth Day and the creation of the U.S. Environmental Protection Agency.

Thursday, April 23, 2009

Wealth and the Environment

Wealth in the modern world comes from industrialization. So shouldn't wealthy countries be the biggest polluters? Writing in the New York Times, John Tierney describes how countries get greener as they get richer:

By the 1990s, researchers realized that graphs of environmental impact didn’t produce a simple upward-sloping line as countries got richer. The line more often rose, flattened out and then reversed so that it sloped downward, forming the shape of a dome or an inverted U — what’s called a Kuznets curve.

In dozens of studies, researchers identified Kuznets curves for a variety of environmental problems. There are exceptions to the trend, especially in countries with inept governments and poor systems of property rights, but in general, richer is eventually greener. As incomes go up, people often focus first on cleaning up their drinking water, and then later on air pollutants like sulfur dioxide.

The curve is named for economist Simon Kuznets, who noticed the pattern. In this example, sulfur dioxide emissions start to fall when per capita GDP passes $8,000:

This chart shows an interesting phenomenon that offers an explanation for the Kuznets curve. The green curve (countries with strong protections for property rights) peaks at a lower level that the red curve (countries with weaker protections).Bruce Yandle, Madhusudan Bhattarai, and Maya Vijayaraghavan offer this explanation for the role of property rights:

As “propertyness” expands—and private property is the most incentive enriched form—individuals have a greater incentive to manage, to conserve, and to accumulate wealth that can be traded or passed on to future generations. Under such circumstances, what might be viewed as a waste stream affecting the commons, or no-man’s-land, is seen as an invasion of property. Those who impose uninvited costs are held accountable.

As societies become more prosperous, the accumulation of private goods prompts the expansion of public goods. The benefits of a larger home cannot be fully appreciated in the absence of clean air and clean potable water. Those able to invest in owning a home want to know that the neighborhood is environmentally safe.Chart: Xiang Dong Qin, Clemson University

Wednesday, April 22, 2009

An Old Joke, Another Year Older

Monday, April 20, 2009

President Obama and Latin America

The summit of western hemisphere leaders (excepting Cuba) was noted for the sharp change in tone. As the New York Times reports, the U.S. will still provide the organizing principle of relations among the Americas, only in a positive, and not a negative, way:

The antagonism seemed to melt away, replaced by a palpable enthusiasm for a new openness from the United States and hopes of improved relations for Washington with Venezuela and Cuba, which emerged as a core issue here.

Obama was ready for the predictable Republican rhetoric that he was soft on unpleasant Latin American leftists:

Senator John Ensign, Republican of Nevada, said on CNN that it was “irresponsible for the president” to be seen laughing and joking with “one of the most anti-American leaders in the entire world,” referring to Mr. Chávez.And Senator Lindsey Graham, Republican of South Carolina, pointed to Cuba’s estimated 200 political prisoners. “Release the prisoners and we’ll talk to you,” he said of the Cuban government on Fox News Sunday, adding, “Put up or shut up.”Mr. Obama defended his overtures at a news conference on Sunday, saying the handshakes and the polite conversation he shared with Mr. Chávez here were hardly “endangering the strategic interests of the United States.”

Participants were surprised by the relative calm that characterized the gathering:

Prime Minister Stephen Harper of Canada said, “The most remarkable thing about this conference was the failure to fulfill expectations of great confrontation.”

Yet soon after, Ortega, who was ousted in 1990 elections that ended Nicaragua's civil war but who was returned to power by voters in 2006, delivered a blistering 50-minute speech that denounced capitalism and U.S. imperialism as the root of much hemispheric mischief. The address even recalled the 1961 Bay of Pigs invasion of Cuba, though Ortega said the new U.S. president could not be held to account for that.

At least a sense of proportion prevailed on that point; Barack Obama was born several months after that ill-fated escapade.

Friday, April 17, 2009

Should the U.S. Ban Charcoal Grills?

Our environment gets slammed twice. Once during the manufacturing of charcoal or rather how wood is burned during process and then again when the consumer uses it. The folks in the villages use their stoves as a means of survival and we use our BBQ grills for pleasure.

Throw in the petroleum based lighter fluid, and what do you have? "Triple threat to the environment."Let's try an order of magnitude estimate, starting with the U.S. and India.

The U.S. use is just 1 percent of India's. Add the rest of Asia and Africa, and that figure would shrink to well under 0.5%.If cook stoves cause 18% of global warming, then charcoal fires in the U.S. would cause less than 0.1%. Throw in Kilroy's "triple threat" of charcoal and lighter fluid production, and that figure might increase slightly. So the net reduction of banning charcoal grills would be relatively small, and all out of proportion to the furor (Al Gore wants to take away my barbeque!) such a ban would create.Last year I wrote about the environmental impact of meat, highlighting a New York Times piece that noted, "2.2 pounds of beef is responsible for the equivalent amount of carbon dioxide emitted by the average European car every 155 miles." So a barbeque might be roughly equivalent to the trip to the beach.But backyard barbeques and trips to the beach make up a relatively small portion of our carbon footprint. Our lengthening daily commutes and daily visits to MacDonalds have a far great impact.And as for Kilroy's evocation of the guilt factor (survival versus pleasure), I'm not that interested. I don't think guilt is much of a motivator for environmental change; the boys driving their Hummers already got over that. In my view, making people fell bad is not a winning strategy.

In Kohlua, in central India, with no cars and little electricity, emissions of carbon dioxide, the main heat-trapping gas linked to global warming, are near zero. But soot — also known as black carbon — from tens of thousands of villages like this one in developing countries is emerging as a major and previously unappreciated source of global climate change.While carbon dioxide may be the No. 1 contributor to rising global temperatures, scientists say, black carbon has emerged as an important No. 2, with recent studies estimating that it is responsible for 18 percent of the planet’s warming, compared with 40 percent for carbon dioxide. Decreasing black carbon emissions would be a relatively cheap way to significantly rein in global warming — especially in the short term, climate experts say. Replacing primitive cooking stoves with modern versions that emit far less soot could provide a much-needed stopgap, while nations struggle with the more difficult task of enacting programs and developing technologies to curb carbon dioxide emissions from fossil fuels.

Another argument against action against global warming is that the cost of remediation will slow social and economic progress. But replacing dirty stoves could be relatively inexpensive and pay dividends in terms of improved standards of living for third world households.Reducing soot emissions could be more effective than reducing CO2 in producing immediate benefits:

In fact, reducing black carbon is one of a number of relatively quick and simple climate fixes using existing technologies — often called “low hanging fruit” — that scientists say should be plucked immediately to avert the worst projected consequences of global warming.

Replacing dirty cooking stoves would have other environmental benefits like reducing deforestation and significant health benefits for families. New solar powered stoves could cost $20 and yield benefits that could pay for the modest cost many times over.

But policy makers and experts said the precision killing of three Somali pirates with three bullets would certainly prove easier than wiping out the larger threat in the shipping lanes or reversing the instability that makes Somalia a breeding ground for pirates and Islamic terrorists.

As for options, they are limited:

White House officials on Monday played down suggestions that the United States could attack pirate bases on shore, portraying that as premature at best.Other options that the administration has before it, according to experts, are deploying more ships to patrol the region, pressing commercial shipping companies to stop paying ransoms and to do more to defend their vessels, get other nations to help capture pirates and bring them to justice, and doing more to build up a fledgling transitional government in Somalia.

This was a case involving a U.S. crew on a ship flying a U.S. flag. While President Obama is under no obligation to protect ships and crews from other countries, the U.S. could lead a more concerted, coordinated effort among countries. That would be in our interest.

Saturday, April 11, 2009

The Horse Flies Come to Arden Tonight

The barely describable Horse Flies come to Arden's Gild Hall tonight. Having first seen them nearly twenty years ago, I had the pleasure of seeing them several times at the Philly Folk Fest in 2006.Here's how I described them at the time:

This ballooning of the notional value of derivatives and swaps was not accompanied by a comparable growth in actual economic activity. As we have learned, the financial wizards weren't creating value, but simply churning their customers and pocketing inflated fees from the transactions.

In the years that followed, of course, banking became anything but boring. Wheeling and dealing flourished, and pay scales in finance shot up, drawing in many of the nation’s best and brightest young people (O.K., I’m not so sure about the “best” part). And we were assured that our supersized financial sector was the key to prosperity.Instead, however, finance turned into the monster that ate the world economy.

The monster grew so fearsome that it even took a bite out of Warren Buffet. It's time to tame it.

Thursday, April 09, 2009

Barack Obama and the Dow

You may recall that some opponents of President Obama have on occasion used the gyrations of the stock market to declare, or at least hint, that his economic policies weren't working. For instance, back on February 21, Dave Burris linked to this post by Liz Peek declaring, "Stock Market Gives Obama’s First Month an F."Today the Dow Jones Industrial Average closed at 8,083.38, slightly higher than it did on January 20, the day Obama took office. The S&P 500 also finished slightly higher (856.56) than its January 20 closing price.Perhaps those using stock indices to grade Obama could now give him a gentleman's C (or higher if you want to account for degree of difficulty). I'm happy that the stock market is showing some strength. But using the daily or weekly fluctuations of stock indices is hardly a way to evaluate the president's economic strategy.

Wednesday, April 08, 2009

Why We Won't See a Sales Tax in Delaware

The pain from the proposed 8 percent pay cut for state workers has some people talking seriously about imposing a sales tax, which is close to heresy in Delaware. The reason most often cited for not instituting a sales tax is to keep Delaware's competitive advantage. But there's another reason why I don't think we'll see a sales tax adopted in Delaware: the state isn't equipped to collect it. The Wilmington area yellow pages on my desk runs to 1,248 pages. Each of those business would have to be given rules, procedures and forms for reporting and collecting the tax. The Revenue Division has 204 budgeted positions. These employees are kept busy collecting the personal income tax, the corporate income tax, the franchise tax, the gross receipts tax, the bank franchise tax, the public utility tax and more. Imposing a sales tax would require the state to hire new staff, find new office space, establish new procedures and set up new information systems to collect it—a daunting task, even if the political will were there to do it. Increasing an existing tax is easier than setting up a new tax.

Monday, April 06, 2009

East Coast Wind Power Could Replace 3,000 Coal Plants

ATLANTIC CITY, N.J. (AP) — Windmills off the East Coast could generate enough electricity to replace most, if not all, the coal-fired power plants in the United States, Interior Secretary Ken Salazar said Monday.

How much?

Salazar said ocean winds along the East Coast can generate 1 million megawatts of power, roughly the equivalent of 3,000 medium-sized coal-fired power plants, or nearly five times the number of coal plants now in the United States, according to the Energy Department.

Some of that potential is in deeper coastal waters, and would not be economically feasible to exploit using current technology.According to an Interior Department report issued last week (available here), the wind power potential of shallow east coast waters (less than 30 meters deep) is 253.2 gigawatts. Most of that potential—165.6 gigawatts—is concentrated in Mid-Atlantic waters.

Friday, April 03, 2009

A New Environmental Policy for Delaware, Part 2

For many elected officials, policies are simply a matter of picking from a menu. Republicans tend to pick mostly from Column A while Democrats tend to pick mostly from Column B.

But Jack Markell’s speech Wednesday night was not just a set of policy proposals, but a description of how he thinks about environmental issues.Yes it’s exciting to hear a governor say that Delaware “must strive to become the first state largely powered by renewable resources.” But I am just as excited by what Markell said about how he thinks about policy, particularly in using economic analysis to inform sound environmental policy.Collin O’Mara’s nomination to head DNREC caused some to wonder whether the new talk about climate prosperity would eclipse the agency’s traditional functions.Markell was sure to underscore the need to be diligent in enforcement as a cornerstone for building green industry, saying “we can’t build the economy of the future unless we have the courage to clean up polluting industries of today.”He added that traditional enforcement would be informed by a broader economic analysis:

But bringing facilities into compliance alone won’t be enough, we must put policies in place that examine the costs of continuing the status quo by identifying harmful impacts of pollution.

For too long, we have not examined all of the costs of pollution in our state: healthcare costs, environmental degradation, infrastructure demands. These are real costs. They have real consequences and deserve real consideration.

That’s why I recently directed DNREC to intervene in Delmarva Power's Integrated Resource Plan with the Public Service Commission and I want to make this a standard practice going forward.

Markell cited two other areas ripe for economic analysis:

Expanding recycling: despite the short-term economics of recycled materials, it will be much more cost-effective in the long-term to prioritize recycling instead of the purchase of another landfill site (assuming we could even identify one).

Conserving land: calculating the true benefits of land preservation, including watershed management & water purification, wildlife habitat, local food production, and air quality & carbon sequestration (trees/soils) all have an intrinsic and economic value.

This point of view was captured in a now famous issue of the journal Nature with the headline “Pricing the planet,” that described the first serious attempt to put an economic value to on the planet’s natural resources. (The estimated value in 1997 was $16-54 trillion.)I discussed many of these ideas with Collin O’Mara when I met him three weeks ago. Whether it’s the economic analysis of recycling, the relative efficiency of different carbon reductions technologies, the importance of capturing externalities of polluting industries or calculating the energy savings from street trees, he understood every point I could raise, often better than I did.I like to say that how a person thinks is as important as what a person thinks. Jack Markell signaled his thinking when he first wrote that capturing long term economic costs and benefits was key to understanding the prospect of offshore wind power in Delaware.To have a governor and DNREC secretary who understand how energy, economics and the environment are being reshaped makes this an exciting time for policy wonks—and for making a Delaware a leader in building a new green prosperity.

Thursday, April 02, 2009

A New Environmental Policy for Delaware

First, I have learned the Collin O'Mara was unanimously confirmed by the Senate as the next Secretary of Natural Resources and Environmental Control. The policy he was hired to implement is summarized in the speech Jack Markell delivered last night to the Delaware Nature Society.The speech lays out a new environmental direction for Delaware, not just in specific proposals, but in the way we think about policy:

Good evening. It’s wonderful to see so much energy in this room.Let me begin by thanking you for your passion and advocacy for the issues that we all care about--I probably wouldn’t be standing here before you today without your support.I am proud to have stood with you in support of off-shore wind power, and to have learned so much from you.I am grateful for your support in the past and I look forward to continuing our partnership as we make Delaware a national leader in environmental sustainability.I’d like to use my time with you today to tell you a little bit more about my vision for the environment in Delaware, especially how I see the intersection of environmental protection and economic development.Let me begin by saying that my vision of creating a green economy in Delaware starts first and foremost with strong environmental protection--we can’t build the economy of the future unless we have the courage to clean up polluting industries of today. There are too many facilities either out of compliance or operating with expired permits--we must take action now.We need additional monitoring and better scientific data to allow us to fully understand the magnitude of the link between pollution and health outcomes and take swift and appropriate action.But bringing facilities into compliance alone won’t be enough, we must put policies in place that examine the costs of continuing the status quo by identifying harmful impacts of pollution.Last April when I participated in a debate hosted by the Nature Society, we talked a lot about our aspirations and I said that "Delaware does not have, but sorely needs, a policy that puts our environmental health and welfare at the center of the public policy debate."Over the past two months, I have begun to put this belief into action and transform the idea of making sustainability a central part of state government policy and leveling the playing field for clean energy from a campaign promise into meaningful progress.For too long, we have not examined all of the costs of pollution in our state: healthcare costs, environmental degradation, infrastructure demands. These are real costs. They have real consequences and deserve real consideration.That’s why I recently directed DNREC to intervene in Delmarva Power's Integrated Resource Plan with the Public Service Commission and I want to make this a standard practice going forward.This type of economic analysis doesn’t just apply to energy policy, but should guide our thinking in many environmental areas. For example:* Expanding recycling: despite the short-term economics of recycled materials, it will be much more cost-effective in the long-term to prioritize recycling instead of the purchase of another landfill site (assuming we could even identify one).* Conserving land: calculating the true benefits of land preservation, including watershed management & water purification, wildlife habitat, local food production, and air quality & carbon sequestration (trees/soils) all have an intrinsic and economic value.Of course, there are ethical reasons for protecting the environment, but I also believe that when we compare apples to apples, there are also strong economic reasons as well, and by taking this approach we will make the best decisions for the long-term future of our environment.This type of economic thinking has shaped my belief that our effort to reduce greenhouse gas emissions can create unprecedented prosperity.Climate change is one of the most significant challenges facing the world today. The projections about the impact of sea-level rise from climate change on our great state alone should concern us all. While some have argued that we cannot afford to act because of the global economic recession, I agree with Sir Nicholas Stern who argues that the costs of inaction will vastly exceed the costs of acting today.Now is the time for bold action.Many of you have heard me talk about my approach as Climate or Sustainable Prosperity. The concept is that we can confront climate change and become more prosperous at the same time by using fewer natural resources.Along with vigilant environmental protection, my strategy has three components: Green Savings, Green Opportunities, and Green Talent.The goal is to create a functioning marketplace for green products that reduce energy and water consumption, adopt renewable energy, and reduce their vehicle miles travelled.Through an array of programs and policies, we will incentivize residents and companies to adopt low-emission, sustainable practices as a way to improve their short and long-term financial bottom line. We will then connect this demand for goods with a supply of products and services from local companies and local workers.As we address climate change, we cannot afford to trade our dependence on Saudi oil for dependence on Chinese solar panels, Japanese electric vehicles, and Scandinavian wind turbines.We must also create economic opportunity here at home. I am confident that if we can approach these challenges holistically that we will not only improve the quality of the environment, enhance the quality of life for residents, and improve public health, but we will also seize the unparalleled economic opportunities that will emerge as we transition to a low-carbon economy and catalyze the growth of the industries and careers of tomorrow.The first step towards achieving this vision is launching a campaign for energy conservation and efficiency.Despite our State budget challenges there are substantial resources from the Stimulus Package, RGGI funds and the bonding capacity of the Sustainable Energy Utility, which will all support this statewide effort (Delaware Modernization Service). In the coming months, we will be announcing several exciting ideas around energy conservation and efficiency, some of which will require legislative changes, and I ask for your help turning these ideas into real results.I will also be talking more about the concept of a “Green Dividend,” which proposes that promoting sustainable land use and smart growth policies can have an extremely positive impact on increasing the vibrancy of an economy and the sustainability of the natural environment.For example, when people drive less or take public transit, they reduce their emissions and environmental footprint, but they also save money (gas, vehicle maintenance, etc).Those saved dollars are then often spent in the community (retail, restaurants, small businesses), rather than leaving the region. Individuals commuting less also have more time to spend with their families, exercise, or other leisure activities, or they can increase their productivity hours--all of which improve their quality of life and potentially their health outcomes.Fewer greenhouse gas emissions improve public health and air, water & soil quality, and help mitigate climate change. By tying together policies around the environment, economy, transportation, health, and agriculture, we will create a more vibrant and sustainable local economy.Let me close with one last thought: Many of you know that Governor Peterson is one of my personal heroes and I have long believed that the Coastal Zone Act is the most important environmental and economic development statute in Delaware history.I am reminded of his visionary leadership every time I travel the state, especially during my annual bike ride along the entire length of the state with my family.Over the past several years, we have all seen more pollution, more roads choked with traffic, and more open space plowed under for sprawling development--now climate change threatens to irreversibly change our natural environment.Allowing the status quo to continue will deprive future generations of Delaware’s unrivalled beauty and diverse ecosystems.I am not willing to allow this to happen on my watch.Just as Governor Peterson displayed bold leadership thirty years ago, the time has come for Delaware to take an active national leadership role in the fight against climate change.We have extremely strong national partners in the White House with President Obama and Vice President Biden, but we must do our part here at home.We must pursue a series of policies and programs that accelerate our efforts to end our dependence on fossil fuels and mitigate and adapt to climate change, while also creating a more sustainable economy.We must take bold action around emission reduction, energy usage, green buildings practices, land conservation, waste reduction, wildlife protection, air, water and soil quality, and advanced transportation.We must strive to become the first state largely powered by renewable resources. We must lead by example and show the path for governments, residents, and businesses around the nation to follow.That said, change will not come easy. There are a lot of interests that will be committed to preserving the status quo.But just as Governor Peterson had the strength to stand up to the Nixon administration and Big Oil with the steadfast support of organizations like the Nature Society, I too will need your support as we work to make Delaware a national leader in this effort.The stakes cannot be higher, nor the challenges greater. While we cannot solve these global challenges alone, we must make sure that we do more than our part. We can build the Delaware that we all know is possible, but it is going to take all of us working together to achieve our common vision.I look forward to continuing our work together. Let’s get to work!